Microsoft Solves the Google Problem
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News Analysis. Bill Gates' company might just survive Web 2.0 after all. Can you say embrace, extend and extinguish? |
But Microsoft's solution to shifting computational and informational relevance, from the desktop PC to the Web and server cloud, requires fundamental changes to the channel business model. Microsoft is going direct, by offering end-to-end hosted solutions to businesses and even consumers. The approach is sensible, and it might even solve the Google problem.
I've blogged numerous times about the topic of shifting relevance and its causes. Short recap: Microsoft is like IBM in the 1980s. The PC, while no apparent direct competitor to the mainframe, made cheaper computing available to more people. Computational and informational relevance shifted from the mainframe to the PC. In the 2000s, relevance is shifting again, from the PC to the Web, which makes information available to more people for lower cost. Timing is fortuitous for Web 2.0 platform companies, as more people use more devices; they need informational access anytime, anywhere and on anything.
Increased mobility increases problems for enterprises, which see more and more of their information escape corporate confines on laptops, smartphones and other portable devices. This informational escape creates privacy, regulatory and security problems, particularly when devices are lost or stolen.
Right Brain Thinking
Microsoft has chosen to take on the problem of shifting computational and informational relevancy and escaping enterprise information with a single approach with subtle nuances: Hosted, streaming and virtualized server applications. There, Microsoft is leveraging strengths—incumbency, developer tools, partner relations and existing products—in ways that seemed implausible even 18 months ago. But everything is predicated on Microsoft's willingness to take more business direct and to offer, or seemingly so, end-to-end products and services.
When I worked as an analyst I blogged that Microsoft should worry less about the desktop and more about the server. If informational relevance is shifting from the desktop, Microsoft should shift with it. Software doesn't disappear, it merely goes somewhere else—to the rackroom on the back end and to disparate mobile devices on the front end. Microsoft changes that matter:
- Microsoft hosted services. What business using Exchange would switch to, say, Google Apps if Microsoft can offer similar hosted benefits and more capabilities (some of them offline) for a tidy, subscription fee? Hosting choice—in-house, third-party or Microsoft—will matter to many enterprises.
- Virtualized and streaming applications. Microsoft can offer subscription and hosted application services in hybrid fashion that Google isn't ready to embrace. The choices—hosted (or not), virtualized or streamed—will appeal to many enterprises, particularly those already heavily invested in Microsoft technologies.
- Software plus hardware plus services. Microsoft has articulated a software-plus-services strategy, while Google really delivers services plus software. But hardware is the missing ingredient Microsoft can add that Google can't—unless, if and when, Android takes off. But Android embraces but a limited hardware segment. Microsoft's Live Mesh is software plus hardware plus services, and perhaps done right.
Platform Changes Ahead
It's hard to understate the importance of Microsoft's forthcoming services platform, of which Live Mesh is but one small part. The company is building out server cloud delivered end-to-end subscription-based application services, both for consumers and businesses. Microsoft is betting on subscription and subscription-like revenue models that are fundamentally different from Google and most other Web 2.0 platform providers. Google revenue is tied to the volatility of the advertising market. Microsoft will charge recurring fees, extending payment concepts around contractual volume licensing to real subscriptions. Yes, Microsoft will offer some ad-funded products or services, but, particularly for businesses, the emphasis will be recurring fees.
Microsoft will offer similar services to businesses and consumers, simply at different scale and pricing. For example, Microsoft has already indicated that application streaming will be a future Live Mesh feature—and I presume for both business and consumer end users. But application streaming is already available for enterprises, enabled in part by Microsoft partners.
Yesterday, Reuters quoted Chris Capossela, Microsoft's senior veep with the Information Worker Product Management group, about the shift the subscription services and the impact on how Microsoft generates revenue. A surprising prediction: "In five years, 50 percent of our Exchange mailboxes will be Exchange Online." Really? Five years is too long. Microsoft has to make that change within three years, or it's too late. Google won't idly wait for that kind of transition.
No Microsoft executive would have made that kind of hosted-application prediction two years ago—hell, not even as recently as 18 months. There is a fundamental mindset change going on at Microsoft about business models—end-to-end, direct, subscription and hosted. From a sheer business survival perspective, Microsoft is preparing to extend its products/services in the right way; embrace the shifting informational relevancy problem/opportunity, extend from desktop to server cloud and mobile device and extinguish the Google/Web 2.0 platform threat.
People Will Pay
Microsoft has a long way to go, and, interestingly, the effort extends beyond the advertising business model. Microsoft doesn't need Yahoo, doesn't need to fear Google by asking people to pay ongoing fees for something valuable. For many people, fees increase the worth of a product or service. For example, consumers can get free TV over the air subsidized by advertising. Yet how many of them are willing to pay cable or telco providers for more ad-subsidized programming—and many other television viewers pay even more for subscription services like HBO or Starz? If the product or service is valuable, people will pay.
Partners don't go away, but how Microsoft engages them changes. Development partners will need to find the right place to fit into Microsoft's broader end-to-end, or seemingly end-to-end, delivery model. Today's Citrix product announcements are good examples, particularly the Citrix Branch Repeater.
Microsoft's end-to-end, hosted and subscription strategies can work because of monopoly—Office and Windows on the desktop—and the increasing success of Windows Server and Windows Mobile. Google must build out platform ecosystem and infrastructure that Microsoft has got. Microsoft had a problem refocusing its assets in a way that reached out to Web without jeopardizing existing revenue streams. But that's changing, and there Ray Ozzie, Microsoft's chief software architect, is likely the major catalyst.
Something else important, and it could only come from acceptance (or realization) by CEO Steve Ballmer: Microsoft corporate mindset accepting end-to-end and subscription business models as acceptable risks (the one causing channel conflict and the other reducing profit margins). The extent of channel conflict remains yet uncertain. Profit margins are easier to assess: They will be more in line with today's server software margins, which means at least 30-percent margin reductions for core desktop products. But revenue should increase and smooth out, as recurring revenue percentages increase.
Comments (20)
Joe wrote:
"Microsoft has a long way to go, and, interestingly, the effort extends beyond the advertising business model."
Yes Microsoft has a long way to go, but Google and the other Web 2.0 have a much much longer way to go. How about an article of what Google and others have to do, to eventually compete with Microsoft (cause it's nowhere near there in everything but searching) in the future, for software and services.
Posted by evan | May 20, 2008 4:02 PM
Live Mesh is definitely product of the decade so far for me. I can't imagine life without it, they are definately stepping in the right direction
Posted by Jesse | May 20, 2008 4:09 PM
We need to understand something here. The value of the service. What it brings to the table in terms of increased productivity and ease of use. I think the software plus services approach Microsoft is building can offer two rich experiences. As Mr. Capossela said, for someone who is not situated constantly at the traditional desktop PC, but are always mobile can have access to what matters most, the information in a relevant way that matches their environment at the moment: email, access to documents, pictures or other data types that are important to the user.
Its about making information be 24-7, available in a convenient powerful way no matter the type of environment, yet making it relevant to the user.
Posted by Andre Da Costa | May 20, 2008 5:48 PM
Ok in simple terms.
This is basically a open notice. We cannot hold the desktop without holding the server. Desktops are dieing. Phones and devices running other OS's are taken over. How are we going to live threw.
This panic is what is behind the Yahoo attempted take over. MS is not in as good of heath as they would like you to believe.
They are in trouble and they know it.
Posted by oiaohm | May 20, 2008 6:20 PM
Once upon a time everything on the Internet was free but the money hungry business barons have got hold of it and now it won't be too long before you won't get anything on it for free.
If you want to jump on to the "cloud" you will have to pay cloud fare.
Posted by Bernie | May 20, 2008 6:29 PM
I almost fell off my chair - Joe writes an objective article?!?!?
How does it feel to write something without some backhanded comment or negative attitude?
Bravo
Joe makes a point I've been making for years to the Microbashers who are sure Apple and Google will take over the corporate world in short order.
None of those companies have the huge ecosystem of server software that MS has. The vast majority of Enterprises not only use it, they depend on it.
It may sound like nothing to the user but it's been MS prime focus for the last 15 years and unlike the desktop, it's not influenced by the consumer and has only gotten better.
MS is in good health today, it's tomorrow that they are so worried about. They personally watched as it happened to IBM(having pushed them there) and will do anything and everything to not follow that path.
Posted by BlahBlah | May 20, 2008 6:41 PM
Hey! Are you folks writing about the same M$ that cannot manage its own updates, thinks bloat is what people want, and doesn't know how to code in standard HTML? How are they ever going to run the whole world's IT structure? M$ is all about centralization. Web 2.0 is about sharing and decentralized control. M$ is not big enough to do this thing either. They need web designers by the 100k to do this and they have not enough.
M$ is an unreliable partner. The world is not going to give them control over their data after struggling for a decade to free its PCs.
Do not underestimate Google. They know how to do the distributed thing and the sharing and the FLOSS thing. They can scale up quickly whereas M$ keeps making bottlenecks. Google has the right idea. Provide basic tools for folks and they will build the system. M$ cannot impose itself on the world via the web. They are losing market share on the desktop even with OEMs and retailers catering to their whims. There are no OEMs and retailers running the web, just users and ISPs. The ISPs have little use for M$ and M$ has no leverage to create a monopoly on the web.
Their desktop empire may give them a quick boost until the regulators slap them but M$ will not have a free ride for five years while that happens. Their desktop monopoly will be just about gone in five years. The web will be able to store the world's documents in two.
Further, I think M$ cannot handle the openness required to take over the web. They like to hide everything from the end-user. The web will give end-users a real feel for what M$ is doing unlike anything they have seen on the desktop. DRM for instance. If M$'s DRM is in place on their websites the end-user will see it every time they upload a picture of Uncle Joe, or a video they made at the barbecue. Google will not have to bother. Where will the people go?
Imagine Vistaesque sloth on M$ sites. Imagine pauses for updates. We know that M$ takes 3 machines to do what one GNU/Linux machine will do. M$ will never be competitive.
Posted by Robert Pogson | May 20, 2008 7:06 PM
When it comes to partnering, I believe this is a great opportunity for Microsoft Partners especially to sell the unique experience this will deliver to customers. You can have the meal without preparing it. When Microsoft says 50% of Exchange accounts will be Exchange online this will give partners a chance to sell Microsoft services in a way that will help businesses focus on managing the information rather focusing on the tools used to implement the solution. Microsoft partners will be making a profit, customers will be running their businesses efficiently while Microsoft gains revenue from the licensing Microsoft Partners will need to purchase to build hosted infrastructure for customers.
It will be more focused towards the dream of utility computing and the idea of Microsoft technologies powering it and Microsoft tools for manipulating the data end users create on top of that stack. Its Win-Win-Win.
Posted by Andre Da Costa | May 20, 2008 8:54 PM
GOOD ARTICLE. This is compelling reading, offering insight without arrogantly claiming to know more than the people in the trenches (msft employees and customers). More please. PLEASE.
Posted by uhura | May 20, 2008 9:34 PM
YOURS IS A LOUSILY SITE VWHICH DOES NOT WORK FOR V@@ HOURS A DAY
STOP IT _ STOP with immidiate effict , if you don't stop it I will claim compensetion from you are you ready YES/NO
The reply must reach me by 24 hours ..... OK or yoyr activity in INDIA will be blocked ...not a threat a fact only .......
Posted by D.Gupta | May 21, 2008 3:21 AM
Hey Gupta... drink a slurpy and stop posting nonsense.
Posted by bone | May 21, 2008 5:07 AM
Microsoft won't have a chance to experience Web 2.0 unless it pays up to use patent 744. The entire computing world, including Open Source, will have to pay up to use that billion dollar patent and only Vertical Computer System has it. 744 has a lock on XML, something that Vertical was smart enough to predict back in 1999.
Anyone who's listened to me for the last 8 years will become RICH beyond their wildest dreams, once Vertical comes out of "stealth" mode and Wade really lets the stock take off!
Posted by portuno diamo | May 21, 2008 10:25 AM
Web 2.0, cloud and all the alien spaces that Google and Apple rules, all said and done, in the end to use all of this, you need a plain vanilla desktop to start with nd thats is why MS is better positioned.
Joople(Types of Joe, Google and Apple): Their expertise is not in vanila desktops and that's where the masses are. Apple, not in the near future will be able to gather significant share in desktops, to create a market where people would think beyond Windows. If Apple thinks that their aim is to topple the market share for Windows, then I guess, they should rethink on making the Macs more user friendly for the vanila users.
Google will thrive on Microsoft's success on the desktop front and should know that Apple and others will not be the best to help them to rule their domain.
Apple: I like candy. But candy is not all the nutrition that I would want.
The point is, inspite of all the hue and cry over anything and everyhing happening in information technology signalling the doom for MS, the reach and ease of availability of MS desktop software, not to mention the ease of use and worldwide acceptability of it's formats across all industries and class of people makinging it the defacto standard, infact is only going to strengthen the MS arsnel as most of the applications, developed at consumer level, are designed to integrate with consumer level MS systems, which in turn means that business' will have to ensure that thier systems are integrated to the mass.
It is just a wishful thinking developments in IT would sound as a death knell for MS.
Posted by Nikhil | May 21, 2008 10:48 AM
I did not make the comment posted as: "Posted by portuno diamo | May 21, 2008 10:25 AM"
This website allows any username on comments and someone thinks it's a clever trick to impersonate me.
Those of you familiar with my writing knows I don't use the kinds of words used in that particular comment.
Somebody must be plenty desperate to have to resort to that kind of trickery to detour readers.
Posted by portuno | May 21, 2008 12:30 PM
BlahBlah wrote: "I almost fell off my chair - Joe writes an objective article?!?!?"
They're all objective.
Joe
Posted by Joe | May 21, 2008 2:42 PM
bone, I apologize profusely. I was in the other room setting my wife on fire, and my pet monkey must have gotten loose because I found him on my keyboard when I returned.
Posted by D.Gupta | May 21, 2008 7:32 PM
@@ D Gutpa
most stupid post i have ever read !!
Posted by cabhishek | May 22, 2008 2:00 PM
@ D Gutpa
stop posting non sense
Posted by cabhishek | May 22, 2008 2:02 PM
D.Gupta: you be trying hard to make funny. you not succeed.
ps. why are all your posts timestamped at 7:11pm
Posted by bone | May 23, 2008 2:48 AM
@ Joe,
Your comment section is full of holes. I did not make the post above:
portuno diamo :
Microsoft won't have a chance to experience Web 2.0 unless it pays up to use patent 744. The entire computing world, including Open Source, will have to pay up to use that billion dollar patent and only Vertical Computer System has it. 744 has a lock on XML, something that Vertical was smart enough to predict back in 1999.
Anyone who's listened to me for the last 8 years will become RICH beyond their wildest dreams, once Vertical comes out of "stealth" mode and Wade really lets the stock take off!
Posted by portuno diamo | May 21, 2008 10:25 AM
----------
Somebody else has posted as me here in an effort to discredit what I say. I don't use the kind of phrasing that is written here. Anyone who's read my posts know what I will say and what I won't say.
I did not make the post.
Posted by portuno | July 22, 2008 9:25 AM